Bank of America Finally Catches on to Global Economic Collapse

Inverted bond yields a sign of things to come from things gone bye?

News that we are sliding into global economic collapse is building every day. It intrigues me that it is now coming from the least-expected sources — from those who were the true believers in the Fed’s recovery and who have profited off the bull market so that they never spoke against the Federal Reserve’s quantitative easing and low-interest-rate policy … until now. That they are suddenly jumping onto a different bandwagon than they have been riding all along says to me that they are seeing economic collapse as being as a lot more likely, and they don’t want to look like they missed the call.


Bank of America admits they should have seen it coming


Even Bank of America is joining the chorus of doomsayers. They don’t say the “it” that they should have seen coming is global economic collapse, but you can see them saying that they should have seen that QE over the past few years was creating huge collateral damage and even market addiction to Fed stimulus. It’s good to hear them finally they admit they missed seeing something that they should have seen all along.


At some point during Fed QE, the markets started reacting positively to bad news. In our view, this is when things started going wrong. Bad news became good news for asset prices, as markets expected more QE by the Fed. Asset prices were increasingly deviating from fundamentals, as the markets were trading the Fed instead of the economic reality. This was clearly not sustainable…. (“Bank of America: Here’s the Precise Moment When We Should Have Known QE Went Wrong“)


Yes, BofA, some of us knew that back then and pointed out right away that it meant QE was turning markets upside down. More importantly, it clearly proved that QE was pumping up a major bubble in the stock market. Every time QE was given or promised or even if it was just implied by negative economic indicators that could trigger more Fed QE, the stock market went up. It went up when negative economic indicators should cause it to fall. Clearly, then it could ONLY be going up each of those times because of QE. A small brain can figure that out.

It should have been obvious to everyone in the world that the engine was running backward. The stock market was being driven up simply by the hot air of QE hope. It didn’t even have to wait for the actual QE. Just the hope that it was coming bid the market up.


We should have known something is wrong. The Fed “taper tantrum” could have been the first signal that QE had gone too far….


Yes, you should have, BofA. And some of us did. A very small number of writers, such as myself, looked at that and said, “Hmm, if that many people will go insane about interest rates because the Fed hints that it may raise them A YEAR FROM NOW a VERY TINY BIT, then clearly this market is running purely on the Fed’s low interest and quantitative easing. A mere breath that it will end in a year or so causes convulsions. In fact, the market didn’t even need the fuel of real stimulus. Just the fumes of knowing it QE was likely coming was enough to drive the druggies to speculating the market up higher in anticipation of the next big hit.

Some of us saw that quite clearly. Where was Bank of America? It is not as if this wasn’t patently obvious, as now even this person at BofA admits.

Some of us saw what is happening now quite clearly even before it started actually happening. Where was Bank of America?


The story of the year so far may be that of a negative feedback loop leading to a bad equilibrium. First, risk assets sold off expecting the Fed to tighten. Then, the sell-off went too far and started affecting the real economy, including in the US. Now, the Fed is not tightening as a result…. This is a new regime, in which bad news is bad news. This is how it is supposed to be, but the adjustment back to normal has not been and is not going to be smooth, in our view.


BofA is reporting now what I predicted months ago, which was that the end of all Fed life support would not go smoothly. In fact, I’ve said it will be the end of this economy. While BofA is not quite calling it the end of the economy, they are noting that it is going to be rough from this point forward. I’d add “very, very rough.” BofA missed the call entirely until after the economic collapse started to happen; so, it’s not surprising that they still underestimate the extreme nature this fall will take and don’t call it a global economic collapse … yet. Give them time. They’ll see it after the fact, and I can use them then to verify that what I said would happen … happened.

Recently, I moved a little further in saying that it no longer even mattered whether the Fed ends its low interest or not. That was because I believed the market would finally see that the Fed cannot break free of its own program without killing the economy it has been inflating.

The fall in the stock market and US economy is already happening. For the first time since the Great Recession began, it fell because the Fed said it will NOT raise interest (as it did again briefly today when the Fed repeated a similar statement). I think that is not simply because the market is returning to normal, as BofA acknowledges. It goes deeper than that. The market is starting to break out of economic denial and doesn’t like the crumbling world its eyes see upon first awakening. The mirage of recovery is no longer sustainable because the economies of the entire world are crumbling.


Expect economists to be the last to see global economic collapse coming


Even economists — the people who have proven least able to see economic downturns coming or to understand what makes an economy function healthily — are now seeing through their bottle-thick glasses that it looks like the US is going into recession:


As the evidence, that the US economy is either in or near a recession, mounts (confirmed by a new cycle high in inventories-to-sales just today), it appears even the most ardent optimists are admitting the odds of a US recession are on the rise. As Bloomberg reports, for the first time in 14 months, economists year-ahead recession probability estimates rose (to their highest level in 2 years). (ZeroHedge)


You can’t expect modern economists to be the first to see a global economic apocalypse; but they are, at least, beginning to see that there is a higher likelihood of a US recession. (Old-world economists can see it, but they are an ignored minority right now.) Most economists won’t even see something as big as global economic collapse coming until several months after its here because they need two quarters of economic decline in order to know we’re in a recession. Hence, all recessions are officially declared half a year after the fact of their beginning.

Remember that one of the high priests of Economics, Ben BreakTheBanke, declared that the housing market was in sound shape and that there was no recession in site after we had already entered recession and the housing market had already begun to decline? He just didn’t know we had entered recession yet (nor even have a clue it was happening) because economists of his ilk need half a year of facts before they can make that determination.

If they’d stop making those bottle-bottom glasses out of brown liquor bottles, maybe people like Gentle Ben could, at least, see through them. Because recessions are ground-huggers, they don’t show up as well from lofty ivory towers as they do from the street. So, it’s hard for people like Ben to see them even when they are happening.

Poor Gentle Ben. He missed calling that one, and now he’s going to miss this one, too. You would think that would get humiliating after awhile. You know: being an economist who was in charge of the global monetary system and the czar of economic salvation and all and, yet, being last to figure out what is actually happening in the economy. That has to be so annoying.

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